ISA 260 definitions
Those charges with governance
ISA 260 defines those charged with governance as the person(s) or organization(s) (for example, a
corporate trustee) with responsibility for overseeing the strategic direction of the entity and
obligations related to the accountability of the entity. This includes overseeing the financial reporting
process. For some entities in some jurisdictions, those charged with governance may include
management personnel, for example, executive members of a governance board of a private or
public sector entity, or an owner-manager.
ISA 260 Scope
ISA 260 deals with the auditor’s responsibility to communicate with those charged with governance
in an audit of financial statements.
ISA 260 effective date on or after 15 December 2009
ISA 260 Objective
ISA 260 objective are;
To communicate clearly with those charged with governance the responsibilities of the auditor in
relation to the financial statement audit, and an overview of the planned scope and timing of the
audit;
To obtain from those charged with governance information relevant to the audit;
To provide those charged with governance with timely observations arising from the audit that are
significant and relevant to their responsibility to oversee the financial reporting process; and
To promote effective two-way communication between the auditor and those charged with
governance.
ISA 260 Requirements
Those charged with governance
ISA 260 requires auditors to;
Determine the appropriate person(s) within the entity’s governance structure with whom to
communicate.
In case of communication with sub committee to governing body, for example; audit committee, the
auditors shall determine whether the auditor also needs to communicate with the governing body.
When All of Those Charged with Governance Are Involved in Managing the Entity, then auditor do
not need to communicate twice, however auditor shall nonetheless be satisfied that communication
with person(s) with management responsibilities adequately informs all of those with whom the
auditor would otherwise communicate in their governance capacity
Matters to Be Communicated
ISA 260 require auditor to communicate following;
The auditor is responsible for expressing opinion and audit does not relive management or those
charged with governance of their responsibilities.
Overview of the planned scope and timing of the audit and significant risks
Auditor view on significant accounting practices, policies and estimates and their appropriateness.
Significant difficulty in audit
Significant matter those discussed with management
Written representation that auditor is requesting
Circumstances that affect the form and content of the auditor’s report
Any other significant matters arising during the audit that, in the auditor’s professional judgment, are
relevant to the oversight of the financial reporting process
Incase of listed companies, communicate that the team, firm and network firms have complied with
relevant ethical requirements regarding independence and where there is a risk the related
safeguards applied to mitigate that risk. In addition to these fee for audit and non audit services shall
be communicated to those charged with governance against relevant categories for them assess the
effect of service on independence.
The Communication Process
ISA 260 required auditor to;
shall communicate with those charged with governance the form, timing and expected general
content of communications
If auditors professional judgement conclude that oral communication with respect to significant risk
is not adequate then communicate the same in writing
Auditor in case of listed entities communicate about the independence as required above.
Communicate on timely basis
Audit shall access the adequacy of two way communication with those change with governance and
its effect on auditors assessment of risk and ability to gather sufficient appropriate audit evidence
Documentation
Where matters required by this ISA to be communicated are communicated orally, the auditor shall
include them in the audit documentation, and when and to whom they were communicated. Where
matters have been communicated in writing, the auditor shall retain a copy of the communication as
part of the audit documentation....
ISA 265 Summary : Communicating deficiencies in internal control to those charged with governance
and management
ISA 265 Definitions
Deficiency in Internal control – definition
This exists when:
A control is designed, implemented or operated in such a way that it is unable to prevent, or detect
and correct, misstatements in the financial statements on a timely basis; or A control necessary to
prevent, or detect and correct, misstatements in the financial statements on a timely basis is missing.
Significant deficiency in internal control – definition
A deficiency or combination of deficiencies in internal control that, in the auditor’s professional
judgement, is of sufficient importance to merit the attention of those charged with governance.
ISA 265 Effective date 15 December 2009
ISA 265 Scope
ISA 265 deals with the auditor’s responsibility to communicate appropriately to those charged with
governance and management deficiencies in internal control that the auditor has identified in an
audit of financial statements.
ISA 265 Objective
The objective of the auditor is to communicate appropriately to those charged with governance and
management deficiencies in internal control that the auditor has identified during the audit and that,
in the auditor’s professional judgement, are of sufficient importance to merit their respective
attentions.
ISA 265 Requirements
Communicate significant deficiency identified during the course of audit to those charged with
governance on timely basis.
Also communicate in writing to an appropriate level of management significant deficiencies in
internal control that the auditor has communicated or intends to communicate to those charged
with governance, unless it would be inappropriate to communicate directly to management in the
circumstances.
Also communicate in writing to an appropriate level of management Other deficiencies in internal
control identified during the audit that have not been communicated to management by other
parties and that, in the auditor’s professional judgement are of sufficient importance to merit
management’s attention.
Include following in the written communication;
A description of the deficiencies and an explanation of their potential effects;
The purpose of the audit was for the auditor to express an opinion on the financial statements;
The audit included consideration of internal control relevant to the preparation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of internal control; and
The matters being reported are limited to those deficiencies that the auditor has identified during
the audit and that the auditor has concluded are of sufficient importance to merit being reported to
those charged with governance.
